The Potential Downside of Successful Brand Building in an Online World?

Branding, they tell me, is all about building a relationship between a customer and a brand.  That customer, theoretically, will have a bias towards your brand that encourages less consideration of alternatives, more purchases and, hopefully, less price sensitivity.  That’s the theory anyway.

It was, most of us would probably agree, a pretty good theory.  It was true for most brands to a greater or lesser extent at least some of the time.  Still is.

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Camp Chairs as a Game Changer; Supporting Your Customer’s Experiences

So, in a market where your customer may value the experience more than the product, how do you know that your product improves their experience? How do they find out it will? Why should they associate your product with the experience? What, exactly, is the experience you are improving?

Let me tell you a story

Every summer, a local winery (Chateau St. Michelle) holds a series of concerts.   Various combinations of my friends and family go to see, typically, one to three concerts there.

You can reserve some really uncomfortable plastic chairs a little closer to the stage, but we always buy cheaper tickets for the festival seating. Below is a picture of what it looks like at a typical concert.  The picture below is taken from the back of the festival seating area. You can see the stage and the uncomfortable, white plastic chairs in front.

Camp Chairs as a Game Changer 10-15

 

Now, it might be that you don’t want to be this far from the stage. If that’s the case it’s either the higher priced, uncomfortable plastic chairs or getting there early. The gates open at 5PM for a 7PM show start. But people start lining up at, well, I don’t know, noon. They bring their chairs, food and drink, blankets, and various other picnicking accouterments, some of which are profoundly clever. The closer to the front of the line you are, the better your space can be when you’re let in. I think the correct strategy is to give a blanket to mark out your spot to whoever is youngest and quickest and send them sprinting as soon as their ticket is taken.

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Trade Shows, My Mother, and Generational Cycles; Ideas About Your Customer

Okay, I’m back from Agenda and Surf Expo. I feel bad I didn’t go to the Zumiez 100K event even though it’s not, exactly, a trade show.  I’ll make it to Denver for SIA, but am not going to OR, though I should. They wanted me to pay to get in, but in the best industry tradition, I found a company already attending that would get me a badge.

Still, I just decided there wasn’t time. I had some god awful viral infection that lasted from Christmas Eve to sometime at Agenda and I’ve got clients that won’t pay me unless I do some stuff for them.

Unfortunately, I’ve never found a client who will pay me for doing nothing. Oh well.

I made a presentation at Surf Expo, and will make a related one at SIA, that actually related my mother to generational cycles and am going to try my hardest to relate that to trade shows. I think I can do it by talking about what drives long term buying habits, something we should all be interested in.

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$800 Sneakers

My research department sent me “The Key to Selling an $800 Sneaker” from the Wall Street Journal.  Personally, I’m not in the market for any of those, but I thought the article said a few interesting things.

The first interesting thing is that there is such a thing as an $800 pair of sneakers. Even more interesting is that Saks Fifth Avenue, according to the article, will have 200 sneaker models priced above $700 this fall.
Now what do I do? I mean, part of me is laughing hysterically at the fact that this product exists and that somebody is apparently, actually, buying it. But part of me respects the guy (Jon Buscemi) who created and figured out how to market it. Jon, 39, started out as a stockbroker and along the way spent some time at DC Shoes. I doubt he has any plans to sell his sneaks at JC Penney.
In fact, he barely plans to sell them at all and is specifically creating a brand known for its scarcity. 400 pairs a year ago lead to 4,000 pairs in January and currently 8,000 pairs are being sent to 50 retailers.

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The Economy, Value of Brands, and Relationship between Brick and Mortar and Online

I went to the Snowboard Industry Conference. I had fun. I learned stuff. I talked to people. I drank beer. I made a speech. Uh, I made the speech before I drank the beer just to be clear.

During that speech there were three pieces of information I want to pass on to you. It’s not that the rest of the speech wasn’t worthy of your consideration, but these are the three things from it that I really want you to think about because they apply to the whole industry- not just snowboarding. All have been stolen from other sources to which I give full credit.
The Value of Brand Heritage?
The question mark is intentional. The people at Trendwatching.com create a free, more or less monthly, publication on brands and trends. You should sign up for it. It makes you think. Anyway, in one they sent me a couple of months ago, they said the following:
“The reality for many brands is that the needs and wants of the new consumer often don’t align with the narrative that they’ve labored to build. For rising numbers of consumers, brand heritage and story has become at best irrelevant, and at worst an active barrier: one which prevents brands they might engage with from offering a product or service that’s right for them, today.”
 
I added the red. I think you’d agree with me that it’s a pretty significant statement. I’ve written that some older brands may have the issue of aging out, where they keep their traditional customers (who tend to start buying less as they age) but have trouble attracting new, younger customers. I’ve also said that as distribution expands, you may have trouble attracting customers in that broader distribution because they may know your brand, but not your story.
The issue if you’re a heritage brand is that you need both the existing customers and the new ones. Trendwatching.com talked about heritage brands doing unexpected things that were contrary to what their traditional brand positioning would call for. “Unthinkable” is the word they use. One example I remember is the venerable champagne brand Moet Chandon selling small bottles of their champagne in vending machines.
Conventional branding wisdom would say, “Don’t do that! You’ll confuse your customers and damage your market position.” Heritage brands don’t want to damage their market positions (no kidding) but they do have to change it. Because if all they have is the customers they grew up with, someday they won’t have any customers left.
I may have said a time or two, “The biggest risk is not taking any risk at all,” and that applies here. Follow the Trendwatching.com logic. What I think they are saying is that stepping outside of your brand’s comfort zone and doing some things unexpected and taking some apparently inappropriate actions for your traditional market position has the potential to attract those new customers you have to find. But if done well, it won’t be noticed by your traditional customers. Maybe that’s wrong. Maybe it will be noticed, but they won’t care. The goal is to have the best of both worlds.
I can’t do this justice in 500 words. Here’s the link to the Trendwatching.com report.
Lessons from Walmart
Probably not where you were expecting me to get my inspiration from. Let’s start with a quote from Mr. Gibu Thomas, SVP for Mobile and Digital at Walmart.
“With mobile, we can make a small store feel like a big store and a big store feel like the Internet. We can combine the breadth of online and the immediacy of offline to create an experience that means we can be a one-stop shop for you.”
 
In this interview in the Atlantic, he talks about how online and brick and mortar are being made to work together. Basically, what he says is selling stuff online is fine and dandy.   But what’s a lot more important are mobile influenced offline (brick and mortar) sales. He thinks that by 2016, ecommerce sales will be about $345 billion in the U.S. and that online sales through mobile devices will be 10% of that. But he thinks that mobile influenced offline sales will be (drum roll please) $700 billion. He notes that two years ago, less than 10% of the traffic at Walmart.com came from mobile devices. This last holiday season, it was more than half.
In my presentation, I concluded that how mobile influences brick and mortar sales may be more important than what you sell online. Think about that. Online and mobile doesn’t preclude or replace brick and mortar. It enables it. I’ve mentioned this article before. Go read it if you haven’t already.
One thing I thought about was the impact on specialty retailers. One of the implications is that there won’t be any reason to have a store where one third of the square footage is devoted to back stock. Inventory will move between stores and/or the customer’s home as they demand. The trouble, of course, is that there’s no benefit to be had if you’re just one or two stores. I’m wondering if that isn’t becoming another advantage of larger retailers, making the financial model of core stores more difficult.
Government Numbers
And finally, from the Bureau of Labor Statistics, I want to bring you the unemployment rate for 16-19 year olds as of February: 21.4%. For 20 to 24 year olds, it was “only” 12.7%. And I’ve reviewed a study showing that in 2000 45% of teens age 16-19 had jobs of some sort. At the end of 2011, when the study ended, that number was down to 26%. Perhaps it’s improved since then.
There’s not much you can do about that (well, maybe hire some kids) but clearly many of our target customers have less money to spend than they used to. That exacerbates our already over branded and over retailed situation. As always, the flexible, open minded companies with the strong balance sheets will be the ones who do well. Go read some of the stuff I’ve pointed you to and consider taking some risks.  You might be surprised how well they work out.

 

A Quart of Paint

If you’re a homeowner, you know that you can never complete your project list. All you can do is try to keep it from getting longer. At our house, outside projects are my job and in the Northwest, that means get them done in the summer.

In the spirit of shortening the list, I stopped by a Sears yesterday to pick up a quart of exterior primer paint for one such job.
And found that Sears no longer sells paint. HOW IS THAT POSSIBLE!?
When we first moved up here from the Los Angeles area north of 20 years ago (Yes, I do appreciate the irony of my having found my way into action sports by moving from SoCal to Seattle), there was a chain of home stores called Ernst. It was obvious they were struggling, but when they started to carry furniture and all kinds of other stuff basically, in my view, desperately putting on the floor whatever they thought might possibly sell, I knew they were toast. Shortly thereafter, they were out of business.
It’s no secret Sears has been struggling. But when I saw they were no longer carrying paint I said, “Okay, that’s it.”
Tactically, I’m sure their carefully conducted analysis showed that paint was a money loser for Sears. So they got out of it.
But it’s way more than a financial decision. It’s a decision about who their customers are and what they expect from Sears. Truth is, I mostly go to Home Depot and Lowes now because I know that whatever I want for home repair, maintenance, or remodeling they are likely to have it. But Sears was convenient, and I had a residual affinity for it as a home store. But somehow their not having paint flipped a switch in my fontal lobe and what was clearly a delusion on my part is gone.
Sears used to be the place where you could get everything. If not in the stores then through the catalog. For certain items, it could be the only choice for people in parts of the country, and they were happy with Sears even if it took weeks to get the product. It’s way easier to be a retailer when your customers have no choices and love you anyway.
Sears has a hangover from the party it threw while selling almost everything to everybody. Now, why would you choose Sears? It sells hardware, home improvement, clothing, shoes, appliances, electronics, towels and bedding and probably some categories I’m forgetting. Oh yeah- auto repair. Is it your first choice for any of those? Can you think of anybody else that tries to compete in all those categories? To make it worse, we can all think of places with better selection, prices, and/or service in any of those categories.
Sears competes with everybody. Which is impossible and maybe means they are not very relevant as a competitor. I’d also note that the chains I consider the closest overall competitors to Sears (Walmart, Fred Meyers, Target, etc.) are also carrying food; the one thing Sears seems to have stayed away from.
Sears is a hodge podge of unrelated categories no longer connected by a defined consumer need and I don’t think they do any of the categories particularly well. It’s a bad place to be. And, as we all know, it’s made worse by an economy where sales increases are harder to come by.
I’m not writing about Sears because I’m worried about them leaping into the youth culture business (though, hell, everybody else has). They are a poster child for two business conditions. The first is owning a market niche (a damnably big one in Sear’s case) and having the market evolve away from you. Markets, of course, always change, so you have to expect that. I also expect you aren’t going to be able to predict how they change.
The second, said before but worth saying again, is that when you try to be meaningful to everybody, you can end up being meaningful to nobody.
It’s certainly an old story to us. Credible, successful brand tries to leap beyond its customer franchise alienating existing customers, never really distinguishing itself with the new target customers, and finding the competition from the whales in the new ocean overwhelming. Or credible, successful, brand just continues to do what it’s always done and ends up screwed as the market changes and it doesn’t.
It has, I think, always been true that you couldn’t just sit in your niche. Neither could you infinitely extend your brand. But cash flow, I’ve said, covers up a host of problems and it was easier to do nothing, or do the wrong thing, in the old economy and get away with it for a while.
In our competitive thinking, we used to be over focused on what our competitors were doing. It was way easier than really figuring out who your customers were and why they were buying from you- that’s hard work. That really didn’t work and certainly doesn’t now.
To over simplify, you probably have to grow, but not too much. “Not too much” is different for every brand or retailer. Every product you decide to carry, every distribution decision you make has to be based on what your customer is doing and what they want from you.
Create a process to help you make those decisions. If you don’t, they will be overwhelming and you’ll find yourself wallowing around like Sears. Don’t stop carrying paint if your customers expect you to have it.

 

 

Trying to Think About the Junction of Retail, Brands and the Internet.

The more I think about it, the less I feel I know for sure. I know the internet and brick and mortar are changing each other, that brands are becoming retailers and retailers brands, that easy information and product availability is making most products commodities at some level, that brands are really pushing product extensions, and that consumers are making long term changes in their purchasing behavior. But stirring this soup of change just makes it cloudy. 

Yet we all have to be thinking about it, and I’ve had a few experiences in recent months that are at least helping with the thinking and, to my surprise, are turning out to be related. Why don’t I tell you about them and we’ll see if they turn out to be related for you too.
 
At the Mall
 
Bellevue Square is a large regional mall here in the Northwest. It’s anchored by a Nordstrom, Penney, and Macy.   I’m in it occasionally and usually take the time to walk through some of the retailers firmly in our industry to see if I can learn anything. For some reason, at my last visit I determined to make a list of those retailers and see just how long it was. Here’s the list I came up with:
 
7 For All Mankind
Abercrombie & Fitch
Aeropostale
American Eagle
Billabong
Buckle
Element
Forever 21
Helly Hansen
Hollister
Lidz
Lucky Brand
Lululemon
Oakley
PacSun
The North Face
True Religion
Vans
Zumiez
 
I didn’t include Nordstrom or Sketchers. Maybe I shouldn’t include Lululemon. There are a few other fashion retailers I might have added. I know the list is shorter if I include only committed action sports brands. Yet I think that would be deluding ourselves. Every store on this list tries to get at least some of the dollars from customers of the core action sports/youth culture market. And I’m sure they all sell on line.
 
That’s a lot of stores for one mall. Bluntly, I’m not sure there are enough market niches to go around especially given that there’s nobody on this list whose niche isn’t determined largely by advertising and promotion.
 
Buckle
 
Buckle, headquartered in Kearney, Nebraska (don’t ask me), has about 430 stores in 43 states and had revenue of $949 million in the fiscal year ended January 29, 2011. The first time I walked into a Buckle store, it had the action sports/youth culture vibe I was familiar with from various other industry stores. But there was something different, and I literally walked around for a minute or two trying to figure out what it was.
 
You know how most action sports retailers have fixtures, posters, and other promotional aids representing the brands they carry? Buckle, I realized, didn’t have as much of that as most retailers. If you look at the list of brands they carry at their web site, you’ll recognize many of the brands, but those brands don’t overwhelm the merchandising of the store. They kind of get equal billing with Buckle’s owned brands, which are not named Buckle.
 
PacSun carried and promoted the brands we’re all familiar with. Then they added their store brands as a way to generate some more margin dollars and to offer more price conscious customers a choice. The way they handled their private label felt tactical and financial- almost like an afterthought- rather than being part of a strategy. I think that choice, along with over expansion, poor merchandising, and a weak economy, was what got PacSun in trouble.
 
Now, PacSun is being more thoughtful in how they handle their mix of brands.  We learn in their recent filings that their mix is about 50/50 between private label and brands owned by others.
 
Buckle, on the other hand, has what I take to be a deliberate strategy of building its image based on all its brands combined- owned and bought from other brands. In their merchandising, there almost isn’t a distinction made between the two. Buckle is a retailer making itself into a brand (or maybe creating brands?) through this approach.
 
I have often thought of store label brands in terms of what percentage of revenues they could safely represent. Perhaps that was short sighted. Buckle’s premise seems to be that it’s the mix and merchandising of the brands that matters given the target customer; there’s no percentage that’s “too much” or “too little.”
 
I wonder if the day will ever come when we see a retailer that has created brands get enough traction with those owned brands to sell them to other retailers. Maybe internationally.
 
Kohl’s
 
I’d characterize Kohl’s as a discount department store with quite a broad array of merchandise (Here’s a link to their investor relations site, which is full of all kinds of good information). Among the brands they carry are Vans, Hawk, and Zoo York. I was struck by the good selection and attractive pricing. Interestingly, they’ve moved from 75% national brands and 25% “private and exclusive brands” in 2004 to 52% national brands and 48% “private and exclusive brands in 2010.” I guess Buckle isn’t the only store that has the idea of melding owned with national brands.
 
“Private” and “exclusive” brands are not the same thing, and it’s important to understand the difference. A private brand is just what you expect; created, owned and controlled by Kohl’s. An exclusive brand is not owned by Kohl’s, but is available exclusively in Kohl’s stores. The Hawk brand is such a brand for Kohl’s.
 
I noticed a poster in the store advertising the Hawk brand, but featuring a skater who was not Tony Hawk. Makes sense to me. That’s what you do when you’re trying to give a brand credibility and longevity beyond an individual.
 
Target has the same kind of deal with Shaun White. Say, I’m going to have to rush right out a nd get me some of those Shaun White window curtains at Target. There are 237 Shaun White items on Target’s web site. Well, good for him. I would have made the same deal even though at some level I hated to see it happen. But I wouldn’t have minded if they’d not done the curtains.
 
Kohl’s has revenues of almost $19 billion generated from over 1,100 stores plus their web site.
 
Reaching Everybody, Everywhere, All the Time with Everything
 
I noted after SIA that everybody who was selling hard goods was making apparel, and apparel makers were making hard goods. I recently commented on Quiksilver’s foray into board shorts for NBA teams and suggested that just because a market extension was possible didn’t mean it was a good idea. Referring to the trends in online shopping, I’ve suggested that consumers no longer feel compelled to have a product they want the same day, so one perceived barrier to internet shopping is falling. About 2008 I started to point out that it was going to be tough to get sales increases, and it was years before that I suggested that perhaps a focus on gross margin dollars was appropriate since that was what you paid your bills with. Even earlier than that, I noted that where to sell or not sell your product was something brand managers focused on every day.
 
It’s just interesting how all this is coming together, at least in my mind. In a weak (though slowly improving) economy with cautious consumers and an environment most companies describe as “highly promotional,” many companies are trying to reach new consumers through product extensions that may or may not widen distribution. And it’s funny, because I see this as the hardest kind of economy to do that in. Almost by definition, you’re moving into a space where other brands are stronger than you are.
 
This trend is driven partly by a need to find sales growth somewhere, especially for public companies. It’s facilitated by technology and the internet, improved logistics and information systems, and a sense, I think, that the distribution cat is already out of the bag so what the hell.
 
Just to be clear, product extensions and distribution expansion aren’t by definition bad. Nike can sell some product at Costco without crippling their brand. Think about what Sanuk did. I expect to see Nixon do some interesting stuff once Billabong’s deal to sell half of Nixon closes and I think they will succeed because of how Nixon is already positioned with their customers.
 
These Days, What is “Positioning?”
 
If you ask me what “we” should do about this, I’d say, “nothing.” It is, as usual, up to individual companies and brands. The first question in the everybody, everything, everywhere all the time chaos is, “Has positioning changed and is it still meaningful.”
 
I’ve thought about that a bunch, which is why this article was actually started before Christmas but is just being finished. I hope it’s being finished. I’ll know in a couple of paragraphs.
 
The tools you use to build your market position have changed in ways we all know. But the concept is still valid and maybe more valid than ever. You build and defend your market position by doing what you do well and communicating that to your customers.
 
When I wrote about companies in snowboarding pushing into apparel from hard goods and hard goods from apparel, I suggested that companies that didn’t do that might find themselves with an advantage. I want to expand on that a little.
 
Maybe effective market positioning is now at least partly a matter of doing less. That is, let other companies pursue dubious product extensions. To exaggerate a bit to make the point, let them try to sell everything to everybody everywhere all the time. I wasn’t even born the first time somebody said, “If you think everybody is your customer, nobody is your customer.”
 
That doesn’t mean never do a product extension. But, more than ever, come at it from a solid foundation of knowing who your customer is and why they buy from you. Never go after a new market because, “We need more sales!” And don’t over simplify the analysis by going, “Well, we’re in business X, and all our competitors in business X make product Y, so we should make product Y too.” That ain’t analysis.
 
If you take the time to really understand how customers perceive you and why they buy your products, you won’t ever be tempted by the wrong growth opportunity, and you’ll immediately recognize the good ones when they come along.
 
I guess that at the junction of retail, brands, and the internet what we find is a slightly different way to think about old, still valid concepts.

 

 

Accidental Encounters with Two Magazines and Market Evolution

The other day I was reading Vanity Fair. That’s a little weird. But my wife gets it, and one of the highlighted cover stories was “Surfing the World’s Giant Waves.” I enjoyed it and learned a little more about surfing history. Still, I was a bit surprised to find the story there. The mag was full of high end fashion ads. Those ads weren’t a surprise.

Then, on another other day, I picked up Complex magazine while getting my oil changed. Actually, it was my car’s oil. Mine should be okay through trade show season.

There were five pages of Vans ads and Volcom had a two page spread. They were right there with the Smirnoff’s ad, the Puma ad, the video game ad, and the various car ads.   DC had an ad for the Rob Dyrdek collection.
None of the ads I notice in either of these magazines (I might have missed one) mentioned skateboarding, snowboarding, surfing, or any of the other sports that might be considered to be “action sports.” Not even the Vans, Volcom or DC ads.
Vanity Fair obviously believes that big wave surfing is of interest to its readers. That’s good news for surf companies. I’m guessing that most of Vanity Fair’s readers don’t surf. But all but the smallest surf companies sell a chunk to most of their product to non-surfers, and they are certainly pleased to see upper income non-surfers be exposed to surfing.
Complex represents a culture, attitude, lifestyle that I’d characterize as young, urban, sarcastic, and a bit in your face. It suggests a certain level of indifference to convention and norms and implies that if you adopt its standards you’ll somehow be self-confident and respected. Cool, if you will.
It is what and how the cores of skate, snow and surf began. Except that you actually had to skate, snowboard or surf to achieve this differentiation back then, and that was a simple distinction.
If our industry was all about, and only about, supporting people who surf, skate or snowboard, I doubt there would be any successful public companies. The participant market and its growth prospects are not large enough to interest Wall Street.
Vans, Volcom, and DC, public or owned by public companies, know this. So we find them running what I think I can fairly characterize as fashion ads (hell, maybe all ads in our industry are fashion ads) making no mention of their roots and the sports they are/were closely associated with. You and I, of course, know what those associations are and our perception of those three brands are influenced by that knowledge. And the people who read Complex? Some of them know, but I imagine a lot don’t. And apparently that’s fine or these brands would feature that association in their ads.
No ads in Vanity Fair yet, and maybe we’ll never see that day. The Vanity Fair sensibility (high style?) is a lot different from Complex (urban/trendy?). Still, though I don’t expect to see it, wouldn’t it be interesting if some brand decided to take a flier just for fun? I can see the Mervin Manufacturing ad now. “Some fool in the marketing department put an ad in Vanity Fair.  They’ve been fired but you can buy our snowboards anyway if you want to. They work good and besides, the ad’s already paid for.”
Yes, it’s easy for me to be cavalier with somebody else’s money.
But you can see a divide happening in the industry, whatever industry we’re in. On the one side are companies that service participants. On the other side are the ones who are more and more fashion based and have to decide how to position themselves with respect to their roots. Is it about trendy, stylish, comfortable product or about making the trick? Can it be both? Depends on your market and how you segment it.
It isn’t that black and white, and the discussion would be different for every brand. But if you make the fashion decision, then you are choosing to compete in a market that dwarfs the traditional action sports industry in resources and sophistication. And you probably need help. This is, and will continue to be, the rationale (a valid rationale) for consolidation and the acquisition of brands that want to “take it to the next level.” In fact, I think it will be the unusual company that gets to that next level without being acquired.

 

 

Opportunities for new Labels and Small Brands. What, Exactly, Should You Do?

I’ve been chanting for the last few months, and maybe longer, that our current economic environment represents a great opportunity for new and smaller brands. At an ASR seminar in September, somebody actually, finally, asked me, “What do you mean by that exactly?”

My answer was that if you were a specialty retailer, and were still standing, you weren’t likely to succeed by relying on big, national brands as much as you use to. I think I cited four reasons this was true.
 
First, a lot of that product has become available in different channels cheaper than you can afford to sell it. Second, a specialty retailer can’t differentiate itself (which it has to do) by carrying the same product everybody else carries. Third, the percentage of revenue large brands get from specialty retailers is declining and even though those brands may be supportive, specialty retailers are simply financially less important to them then they use to be. Fourth, the size of some of the offerings from the large brands makes it tough as a smaller square footage store to carry and effectively merchandise a selection from that brand that meets customer expectations. And of course, we’re not talking about just one brand.
 
I think I’ll add a fifth. If those big national brands are the focus of your store, then you risk being defined by the brands you carry, and I like to think it should be the other way around. The specialty retailer should give credibility to the brands they carry.
 
What Specialty Retailers Want
 If you’re a new label or small brand, and you agree with my above points, what should you do? First, consider this from the specialty retailer’s perspective. I think the ones I’ve talked with would mostly agree with what I’ve said. But that doesn’t mean they are ready to throw out the big national brands they have long term relationships with and make money on. The ones they don’t make money on are another issue, but that’s for a different article.
 
What do they get from, or at least expect to get from, the established, larger, brands?
·         An advertising and promotion campaign that, hopefully, creates demand.
·         Discounts and extended payment terms.
·         Maybe some POP and other kinds of in store support.
·         Reliable, though certainly not always perfect, delivery.
·         Some level of customer service.
·         Margins and a merchandise selection you can make money on. Hopefully.
 
And they also get a comfortable, long term relationship that has a certain momentum to it. I’m not quite sure if that’s a good thing or not.
As a new label or small brand, you might look at that list and think, “Well, I’m screwed. No way can I match that.” You are, I suppose, partly right. But if we cut to the chase, what does a retailer really require?
 
You have to be able to reliably deliver a quality product that offers the retailer some exclusivity and differentiation and that turns well at a good margin. That’s it. And if the retailer is sophisticated, or maybe has read an earlier column of mine, they might also be interested on the possible gross margin return on inventory investment.   If you can do that, I guarantee all the other stuff will fall into place.
On the other hand, if you can’t do that, forget it. You’re not in business.
 
A Checklist
Life’s a whole easier once you’re brand with a track record, so I’ll address my comments to people with new labels that they want to turn into brands. However, most of these items are appropriate to small brands as well.
 
First, we’re assuming you can make and reliably supply a quality product and have identified some trend or point of differentiation that makes the product relevant to the specialty retailer. You’re on your own as far as doing that goes. You also have to have access to some working capital. One of your advantages- maybe your biggest- is that unlike a large brand, you don’t have much to lose by trying something really innovative, creative, and maybe even a little controversial.
 
Second, you’ve got to prepare a business plan. This document will be important not just in clarifying your own thinking, but in building credibility with stakeholders. More on that later.
 
Third, you have to solidify your relationship with a supplier. A known, reliable one would be good. This is not a matter of a few emails and a phone call. It requires visits and takes some time. Show potential suppliers your plan. Explain to them the market opportunity you see. Make sure they understand how they will get paid, and what the longer term potential can be. A supplier can be a crucial source of support.
 
Fourth, figure out your initial target market. Are there three skate parks where you first want to show your product around? What local influential people do you know that can help you build a little credibility?
 
Gotcha founder Michael Tomson, in an interview in the last issue of Transworld Biz, pointed out that when you start, you don’t have a brand- just a label. “You become a brand once you develop equity in that name and label,” he said. That takes time. Maybe five years he suggested.
 
He’s right, and it’s a great distinction. But of course you’re not a label one day and suddenly a brand five years later. There are baby steps along the continuum of brand building. As a new label, you have to pick the place or places where you want to become a brand first. On a mountain, in a skate park, at a couple of local retailers in a club, or some combination of these and others. You aren’t a brand because you call yourself one. You’re a brand when people recognize the name and attribute certain characteristics to it and the product it’s on.
 
Now, it’s time to make some product, and because of all the work you’ve done educating and building your supplier relationship, that hopefully goes well. Or as well as production ever goes. I don’t mean you’re going to make three samples. That’s already happened. It’s time to make enough product to make a quality presentation to potential retailers (assuming you’ve decided you’re not strictly internet) and to begin to build some support and awareness in the local community you’ve chosen as your first target. If somebody says, “Okay, we’ll take it,” you need to be ready to supply and service your new account. “Great! I’ll have product for you in three months,” is probably not the answer you want to give.
 
The steps I’ve listed above don’t happen as independently and sequentially as I’ve listed them. But they all have to happen. Now comes the big moment.
 
Meeting With the Potential Customer
This cannot be a casual meeting where you talk in off the street.  And it cannot be with the second string, substitute, relief buyer. Because of all the work you’ve done, the owner/decision making buyer may have heard of you and your label. Maybe they’ve even had a few kids ask for it. You schedule half an hour or 45 minutes or maybe more and when they say, “I don’t have that kind of time for a brand I’ve never heard of,” you say, “Mr. Owner, we both know it’s a great time to look at new labels, but I have no idea how you’d decide to take a risk on one without spending that kind of time on it.”
 
And no matter what they say, you do not just “drop off a few samples” or let yourself be pushed down to somebody who isn’t in charge.
Now comes the hard work. You have to get ready for this meeting. Find all you can about the shop. Prepare a meeting agenda and send it to them in advance. Put together a folder or a power point for the meeting that might include, but is not limited to:
 
·         The executive summary of your business plan.
·         An explanation of your points of differentiation and the niche the product is going to fill. Why are you going to be competitive?
·         How you are financed and why that financing is adequate.
·         Information on your suppliers. Who they are, how long they’ve been around, who else they produce for. Perhaps a personal letter   to the owner of the shop explaining how you’ve been working with them and that they are prepared to provide product.
·         Personal and business references.
·         An explanation of your distribution strategy. Who else in the area will have the product and when?
·         A copy of your insurance certificate, business license, etc.
·         Brief biographies of the principals and investors.
·         A suggested order, terms sheet, and explanation of how you’ll support the shop in merchandising the product. If you’ve done your homework, you should be able to suggest where in the shop the product should go, and how much space it will take.
·         Your marketing and promotional program- what you’ve done, and what you plan to do.
 
This list isn’t all inclusive, and not everybody will be able to make equally strong presentations of all the items. But if you do this, and you’re making the presentation (which you have practiced for hours and hours) to a business person, I can pretty much guarantee you will blow their socks off. Because for some unfathomable reason, in this industry, they will generally not have seen this level of professionalism from a new label.
 
This whole discussion started with the premise that it’s a great time to be a new label or small brand. Here’s a link to an article in the New Yorker that talks specifically about why opportunities exist right now. http://www.newyorker.com/talk/financial/2009/04/20/090420ta_talk_surowiecki.

 

 

Can We All Please Just Calm Down? A Business Perspective on Blanks

I can’t believe I’m doing this. Oh lord, how many people am I going to piss off this time? I mean, I could just lay low and let the slings and arrows fly back and forth but no, I just don’t have the intestinal fortitude to keep my mouth shut. Instead, there’s this almost pathological need to try and reduce a highly controversial and frankly emotional issue to a series of business bullet points. I guess I’ll console myself by remembering that I’m not going to say anything here I didn’t say some years ago in Market Watch.

I might as well get it over with. Maybe it will help me sleep at night.
For those of you who live at the United States Air Force weather station three miles from the South Pole (and don’t have an internet connection), IASC and the leading skate hard goods companies created and wrote the 32 page insert called “Under Fire” that you all received in the recent issue of Transworld Business.
My hats off to them for achieving a level of efficiency and cooperation that, honestly, I wasn’t sure they could pull off. And they succeeded in highlighting what I think most of us would agree are the major issues confronting the skateboard hard goods industry today and identifying some action items. What I’m going to do is review those issues and then go a little deeper into the business implications of what they are saying and advocating.
Remember that “Under Fire” is a consensus document. That is, not everybody who was represented in it would agree with everything everybody else said. Still, I thought there was remarkable consistency across a number of key points.
And the Key Points Are……
The bedrock of the whole argument is that pros are the foundation on which skateboarding is built and that their influence is key to getting kids excited about and continually committed to skating. Okay, I agree that pros have big influence on the core of skating. How much? As much as they use to? Don’t know.
The next point is that the brands’ marketing activities, including their support of pros, is critical to the health of skateboarding. If skaters are buying blanks and shop decks (I consider those separate categories, and will discuss why later) rather than the more expensive branded decks, the brands can’t afford the same marketing programs. That’s simply a financial equation. Can’t argue with it.
And, the argument continues, if professional skateboarding and the associated promotional activities aren’t strong and can’t be continued at the same level skating, as an activity, a lifestyle, an attitude, and as a business is fated to decline.
Well that would suck if it actually happened. What do the brands want to do about it?
First, they acknowledge that it’s time to introduce some technology and innovation into skate hard goods to give skaters a reason to buy the more expensive branded decks. We’re already seeing some of that start to happen and you’ll see more. But of course it’s not an instant solution. The industry has spent a lot of time, effort and marketing dollars to convince skaters that a skateboard is a seven to nine ply laminated product made of hard rock Canadian maple. Skaters seem to believe it. Getting some of them to pay more for something that ain’t quite that, even when the benefits seem obvious, will take some persuasion and some time.
I guess where we’d like to be in where, for example, golf is. You know- they come out with “new and improved” models every year and people buy them even though there’s nothing wrong with their old stuff and the new stuff is expensive and doesn’t necessarily make a difference in their game. Or like in automobiles- where the newest technology appears in the top of the line product and works its way down year by year.
This will require, however, that the pros be in lock step with their sponsors.
Second, they recognize the shop’s need for a better margin on branded hard goods. What are they going to do about it? Somewhere between lots and nothing. There are brands already offering better margins and some that just don’t want to compete at the lower price point. There is, by the way, nothing wrong with a business decision to not offer a less expensive product if that’s what your market position and targeted customers require.
“Under Fire” is only “the first step in IASC’s plan to continue educating and informing the industry about this issue.” There will be additional steps in the program. The supplement ends with a call to action suggesting some tactics that all the industry’s stakeholders should consider.
So, Where Are We Exactly?
You remember all this from a few years ago. Skating takes off, skate parks start to sprout like mushrooms, brands can’t keep up with demand. Everybody’s happy. Then the market gets big enough for the foreign, low cost manufacturers to notice it. “Hey, we can make this cheap,” they say. They’re right. The usual startup problems. Problems resolved. Eight bucks landed cost for a blank skateboard if you’re buying in quantity. Maybe less. Consumers get the idea that the quality of blanks and shop decks are the same as the branded deck. Big price difference. Product wears out. No fundamental change in the product in 20 years or so. Percentage margins decline. Worse, total margin dollars earned on a deck decline. Fifty to seventy percent of deck sales world wide (you pick the number you believe) are blanks and shop decks.
So after a period of rapid growth, the industry matured a bit and started to consolidate. Product becomes a bit of a commodity, price and margin pressures, volume matters, etc. Look, I’m not going to go through this for the 14th time. All the usual things happen that happen to any industry in its life cycle. Big surprise. It’s so predictable it’s boring.
Anyway, wherever you go, there you’ll be. And here we are. There are some business issues implicit in Under Fire that it didn’t specifically discuss. Well, you can’t blame them- if they had, you’d be confusing this thing with the telephone book. But me, I always wanted to write a phone book.
Why People Buy
As far as I know, there are three things that motivate people to purchase a product. They are advertising and promotion, product features, and price. It appears, right at the moment, that advertising and promotion isn’t working too well for branded skate decks. If it was, there would be no Under Fire and I wouldn’t be writing this. Which, frankly, would be fine with me. There must be a better use for a Saturday morning. I mean, I could be doing yard work. Never mind. I’ll write and send the two teenagers out. Same to you kids. No, you can’t play with the chain saw.
New product features? Well, uhh, there really haven’t been any that have caught on, though hopefully that’s starting to change.
That, I am afraid, leaves us where we really, really didn’t want to be. At price. Let us then discuss the elasticity of demand with regards to price. If the blank/shop deck is, say $20.00 and the branded deck is $50.00 and you’re a fourteen year old without a lot of money or the a parent of a fourteen year old who knows you’re going to be back in this shop in a month, that’s a big difference. Apparently, too big a difference for a lot of people.
How big a difference wouldn’t be too much? Judging from the discussion of the demand for the $35 branded deck in the sacred supplement, the retailers seem to think that’s a price point at which they can sell branded product. But would $40 also work? Or does it need to be $30? What kind of and how much advertising and promotion and product innovation can change that?
We don’t really know. Or at least I don’t know. Actually, I guess I do know the answer. The answer is, “It depends.” Isn’t that helpful? It depends on the brand. It depends on the shop. It depends on buyer motivation. Has anybody out there rigorously asked 500 skaters, or even 100, why they bought the skate board they bought?
Right at the moment, if we asked a bunch of skaters, we know quite a few of them (fifty to seventy percent I suppose) would say that price was a big factor, as is their belief in a lack of meaningful product differentiation. More troubling, I suspect that if we asked our questions just right, we’d find that many are indeed influenced by the pros- but that doesn’t translate into buying a branded deck.  Finally I’d expect to hear, “I support my local skate scene.” And that brings us to our next topic.
Blanks and Shop Decks
Let’s define a blank as a skate board either with no graphics at all or with graphics with absolutely no legitimate connection to skateboarding. There will always be a market for both. Some percentage of the market, especially lacking any real or perceived product differentiation, will always want to buy the cheapest thing they can. It’s true in any market. And somebody will always supply it.
I’d like to say that again- If the customer wants it, somebody will always supply it. Lacking a change in skater perception and motivation, every store and shop that stops selling blanks creates an opportunity for somebody who does sell them.
The non branded board with graphics has been the province of the larger chains and sporting goods stores, often as completes. There’s no possible reason for a “real” skate retailer to carry them, if only because they’d make more money on their shop decks as well as promoting their shop. They are going to be around, and I imagine the quality has improved.
Shop decks, though, are a different story. What I hear, and what I suspect is often true, is that a shop deck, in a good shop’s neighborhood, is essentially a lower priced substitute for the traditional branded product. It offers a certain customer the same sense of legitimacy, belonging, and connection to skating and the skate culture that they use to get from the branded pro deck. And it’s cheaper. And shops make good money on them. I wonder how many shops put out their own pro models. Shop decks are not going to disappear. In fact, they may get stronger. And as I said, I don’t think the success of shop decks is just a price issue.
Maybe, with the right technology and promotion by the brands, shop decks can become the entry level boards.
It would be interesting to collect some good information on sales of shop versus blank decks as I’ve defined them. They really are separate categories, but they’ve been lumped together.
The Role of the Pro
I suspect there are some people who feel no need to collect any data on buyer motivation. They believe they already know the answer they’ll get back. In Under Fire, most of the brands say their companies are rider driven, or words to that affect. Always have been, always will be. That’s a valid statement of principal, but it may not be an adequate basis for a business, judging from the decline in the sale of full price branded decks.
I would not try to push a comparison between snowboarding and skateboarding too far. But I will point out that snowboarding use to have a pile of pros and sell lots of pro decks. Once the industry matured, that started to decline until today, the number of pro snowboards sold is vanishingly small.
That doesn’t mean that the pros don’t still influence snowboarders. But what the snow board brands finally figured out was that the best pros were worth whatever you had to pay them. The ones that you just flowed product to and maybe offered contest and photo incentives were influential at their local scene. All the riders in the middle? Not worth what they cost was the decision, and they are gone.
By the way, my definition of the best pro is not just the one who’s the best skater. It’s also the one who’s personable, responsible, professional, and shows up on time.
The other things that happened, in surf especially, is that the apparel and footwear companies picked up most of the team/pro sponsorship and other marketing expenses.
Is this how skateboarding will evolve? I don’t know. Skate hard goods companies have historically been the bedrock of skate boarding.   Certainly shoe and apparel companies are spending plenty of money supporting skateboarding.
So here’s the marketing matrix. Some skaters are influenced by the pros and buy pro decks. Some are influenced and buy the pro’s brand. Some are influenced, but still buy what’s cheap, maybe spending their money on shoes and clothing again. Some are influenced and would like to buy the pro deck but can’t afford it. Some don’t give a shit and buy whatever is cheapest as long as they perceive the quality is equivalent.
Well, we’re back to buyer motivation. Let’s talk to those few hundred skaters and figure out just where the industry (and individual companies) should be spending its advertising and promotional dollars.
Distribution
Everybody gets together to discuss distribution, tries to blame the other guy for the so called mess, and nothing changes. I’ve seen it too often, and I’m not talking just about skateboarding. Anybody who runs a company in the action sports business sits at their desk and ponders distribution every day. They know who they can absolutely sell to. They know who they should definitely not sell to right now. They try and figure out when and what and how much they can sell to all the accounts that don’t fit neatly in the “sell” or “don’t sell” categories. They ask themselves, “What will other accounts think? How will it impact the brand? How much money can I make? What’s the potential for growth? Is it consistent with my brand’s market position and brand strategy?”
So distribution evolves as companies grow and brands change. It just does. There is no mess. There’s just normal industry/brand/retailer evolution. Do what’s right for your business given this inevitable fact. Don’t look for somebody to blame, and don’t wait for it to be fixed.
Industry Evolution
Industries change. They just do. Companies adapt or die.  The customer always gets what they want. You can influence them, but not always as much as you’d like. An industry succeeds when the companies that make it up compete. Part of that competition is always innovation. Some do well, some don’t. But the industry itself progresses; sometimes kicking and screaming, but it progresses. I guarantee that every company will do what it perceives to be in its own best interest.
I went to the Park and Recreation Convention here in Seattle last October. Basically this is the convention of people who sell stuff to playgrounds, and I can only say that I wish I was a kid again. Lots of cool stuff that’s beyond what I could have imagined when I was of an age to use it.
I saw Per Welinder from Blitz there, manning the IASC booth and promoting skate parks. I walked around a corner and came face to face with Beau Brown, formerly of Sole Tech and now COO of Radius 8, a seller of portable skate ramps. His face was all aglow from the huge number of business opportunities he thought he had at the show. As we talked, a guy from some municipality came up and, apparently amazed to learn that portable ramps existed, asked how quickly he could get some. He guessed at the price, kind of suggesting that one might cost $3,000 as I recall. Beau, who seems to have a nasty ethical streak he needs to get over, told him that no, the one he was looking at was only $300. The guy scurried away to get his boss.